STOPPED IN ITS TRACKS
Business Today|October 03, 2021
THE INDIAN RAILWAYS’ PLAN FOR PRIVATE PASSENGER TRAINS GARNERED ONLY TWO BIDS, THWARTING ITS PLANS TO SHORE UP ITS FINANCES. WHAT WENT WRONG AND WHAT IS THE WAY AHEAD?
ASHUTOSH KUMAR

RAIL BHAWAN in New Delhi houses the railway ministry’s apex decision-makers, including the railway minister. Somnolent during the initial months of the lockdown last year, the place was abuzz with activity in June 2020 as the halting of all passenger trains ravaged the Indian Railways’ already dismal finances. Freight volumes, at 241.66 million tonnes, were down 21 per cent in Q1 of FY20-21 compared to Q1 of FY2019-20. (Passenger receipts have been lowered 75 per cent in revised estimates for FY21 to ₹15,000 crores from the Budget estimate of ₹61,000 crore.)

To curtail the losses, the ministry decided to take the plunge on private passenger trains—a plan it had set in motion some time back by asking its public sector entity, Rail India Technical and Economic Service Ltd (RITES Ltd), to prepare a feasibility report. Such a public-private partnership (PPP) was a first as the government has always controlled the passenger segment, guided by the philosophy that the private sector would neglect the Railways’ social accountability. Now, though, the possibility of a world-class, on-time travel experience held more promise. As did the government’s potential to earn a pretty penny.

The idea was that the Indian Railways would provide the requisite supporting infrastructure and staff, such as pilots and guards, to the private operators. In return, the operators would pay fixed haulage charges, such as for electricity and track maintenance, as also a portion of revenue. The net present value (NPV) of the revenue share, assuming a 10 per cent cut, would be ₹10,463 crore, according to RITES’s feasibility report. And the NPV of haulage charge would total ₹26,346 crore.

The railway ministry kicked off the ₹30,000 crore-bidding process in July last year. Its request for qualification (RFQ) put 109 origin-destination route pairs up for grabs across 12 clusters including Delhi, Mumbai, Chandigarh, Prayagraj, Patna, Howrah, Secunderabad, Jaipur and Bengaluru. Each cluster has several routes that would be operated by the winning bidder.

At least 12 private passenger trains would have been operational by 2023, per the plan, and by 2027, 151 trains with modern rakes would crisscross the 60,000-km-plus railway network. Railways would have an additional revenue stream, the private sector would get a new business, and passengers would experience world-class travel.

The earnings from these 12 clusters wouldn’t help the Railways’ financials much but it would help build a model for private participation. Scaling this up with new routes would have ensured a healthier revenue stream for the Railways, which has been subsidising the losses in its passenger operations from gains in its freight service.

Losses from passenger and coaching services rose from ₹31,727.44 crore in FY14 to ₹46,024.74 crore in FY18, of which Ì€ 101.41 crore was left uncovered, according to the Comptroller and Auditor General (CAG) of India’s report last October. In that same period, the profit from freight services increased nearly 41 per cent to ₹45,923.33 crore from ₹32,641.69 crore.

The CAG report said earnings from freight operations in FY18 subsidized the losses on all passenger services, except the AC three-tier and chair-car classes. The report also said operational losses in AC first-class more than trebled from ₹47.39 crore in FY14 to ₹164.95 crore in 2017-18, while the losses in AC two-tier jumped from ₹497.28 crore to ₹604 crore. However, upper-class rail travel had grown at a CAGR of about 7.5 per cent between FY11 and FY19, the railway ministry found. And that formed the crux of the Railways’ plan to monetise its passenger operations and exploit an additional revenue source by roping in private players.

That plan, however, seems to be a far cry for now. When the bids were opened this July, after a year-long bidding process, they were worth a mere ₹7,200 crore against the planned ₹30,000 crore. The plan for private passenger trains had come to a standstill, even before it left the station.

SEVERAL PRIVATE PLAYERS expressed interest in operating passenger trains. The RFQ generated 120 applications from 16 firms in October last year. These included IRB Infrastructure Developers Ltd, GMR Highways Ltd, PNC Infratech Ltd, Megha Engineering & Infrastructures Ltd (MEIL), Gateway Rail Freight Ltd, Gateway Distriparks Ltd, Indian Railway Catering and Tourism Corporation (IRCTC) Ltd, Omaxe Ltd, and Cube Highways and Infrastructure Pte Ltd. Among the applications, 102 were eligible to place bids.

But a majority of them have since vanished.

The ₹7,200 crore worth of bids came from two parties—Hyderabad-based MEIL and IRCTC, which the government recently listed on the bourses. They had submitted bids for 29 origin-destination pairs, well short of the 109 pairs on offer. According to railway ministry sources, MEIL is a non-serious bid, with a mere 1 per cent revenue-share offer. IRCTC, meanwhile, has offered to share nearly 10 per cent of the revenue it earns. The ministry has held several rounds of talks with both the bidders since this July but is yet to take a final call.

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